One of the questions I get most often from readers deals with buying stocks not listed on American exchanges.
I’m dedicating this post to answering that question. But be warned:
This is a seriously long post. You may want to bookmark it for later.
This question about buying foreign stock comes from individual investors. They want to know how I bought shares of a certain company when it has no American Depository Receipts (ADRs) and I’m residing in the good ole USA.
That makes sense. The readers of this blog working inside the industry are with institutions with offices scattered around the globe. Or their firms have established relationships with brokerage outfits in the nations they’re investing in. Either way, if they want to buy stock in a company listed in Tokyo or London or Singapore, it’s no problem.
Of course, there are some individual investors with enough assets -- think Jim Rogers -- where it makes sense bother with opening brokerage accounts in various countries around the world.
I’m not in that league, so I’ll tell you how I go about buying foreign stocks not trading in the States.
But first, please understand this:
I make no claim to possessing exhaustive knowledge on this subject. I have only ever dealt with one brokerage firm in this regard and I’m content with their service. You may or may not have a better option that I do. You may or may not uncover a better way to buy foreign stocks when researching this topic. I’m just telling you what works for me.
Fair enough? Okay, here we go.
I use Charles Schwab’s Global Investment Services. You can reach them toll-free at 1-800-992-4685 during normal business hours. Call and ask what account minimums are required. Feel free to tell them you heard about them through Controlled Greed.com. The Schwab people are excellent at explaining commissions, expenses and any share purchase minimums required by individual foreign exchanges before placing your trade.
You will NOT able to place these trades online. The exception (I believe) is with Canadian stocks. Several years ago I bought Fairfax Financial Holdings before it listed in New York. But I wasn’t able to place the trade using Fairfax’s Canadian symbol. The Schwab phone rep gave me a special ticker to use to place the trade online, and I paid the same commission I would have if I’d bought a stock normally trading in the US.
I haven’t purchased any stock listed in Toronto since then, so I don’t know what the current procedure is for buying Canadian shares. The last Canadian stocks I’ve purchased as of this writing were additional shares in Fairfax and a new position in BCE Inc. Both now list on the NYSE as well as the TSE. That brings up another point.
You WILL pay higher commissions to buy shares on foreign exchanges. How much may depend on the particular exchange, the amount being purchased and some such. Again, Schwab has always been excellent at explaining what the cost will be for me before my order gets placed.
But if you’ve got your heart set on paying $7 or $9.95 or $12.95 for one of these trades -- forget it.
You’re going to pay MULTIPLE times those amounts depending on the trade in question. Is it worth it? Only you can answer that question for you.
For me the answer is a resounding “yes” -- even when there’s an ADR trading over-the-counter. Let me give you an example:
I’ve been eying an Australian stock lately. It has an ADR trading VERY illiquid on the OTC. Most days it doesn’t trade at all. Even when it does, it just trades a couple of hundred ADRs or thereabouts. To establish a full position for my portfolio, I’d need purchase thousands of ADRs. It would be a pain getting the order filled – and might take multiple orders at that. This company trades daily in Australia and New Zealand. It’s very liquid on those exchanges.
So if I pull the trigger, I’ll gladly call Schwab’s Global Investing Service and pay a higher commission. I think doing otherwise is a case of being penny wise and pound foolish.” But that’s just me.
Furthermore, I do own the ADRs of Nikko Cordial that were purchased on the OTC. If I had it to do over again, I would buy the ordinary (“common”) shares in Japan. And for the same reasons I just mentioned. Nikko Cordial ADRs trade thinly but the ordinary shares are very liquid in their native country.
Schwab sometimes fills these orders by purchasing foreign shares in OTC markets that only brokers can access. For example, I currently own stock in Takefuji Corp. It trades in Japan under symbol “8564.” There is also an American OTC symbol -- “TAKAF.” But that symbol is for the use of brokers who may be able to fill the trade with a market maker in the States. You can try typing “TAKAF” online to get that order filled, just don’t expect it to go through.
Anyway, whether your order is filled overseas or by Schwab on the OTC market, they’re the same ordinary shares -- they’re NOT ADRs. It sounds confusing I know. Yet there you have it.
So now you know what I know about buying stocks listed on foreign exchanges. Whether you think I know a lot or very little, I hope this post is helpful if you're interested.
Remember, I’ve only dealt with Schwab and am happy with their execution and service. I can’t tell you where to go other than Schwab, except perhaps the following:
If you have a brokerage account with a full-service broker such as Merrill Lynch you can probably arrange these transactions. Again, account limits and other conditions may apply so ask your broker.
I have no idea what outfits like E*Trade, Scottrade or other discount and deep-discount brokers offer in this regard. You’ll have to check with them. I recently received an email from a Toronto reader saying he checked with E*Trade in Canada and was told they couldn’t buy Takefuji.
Keep on eye on Kathy Yakal's "Electronic Investor" column in Barron's. She frequently writes on brokers and occasionally devotes part or all of a column on buying stocks in non-US markets.
Finally, my advice is this:
If you want to buy stocks on foreign exchanges, be prepared to pay extra. There are added costs for brokers and dealers in executing these trades, which translates into added costs for you the buyer.
If your broker says he or she can’t execute one of these trades for you, tell him or her to get in the 21st Century.
And then seriously consider getting yourself another broker.